A high performance sales person is one of the most valuable assets a company can have.
The purchase opportunity a consumer will pass up if left to their own isolated mind and will, the consumer will buy and pay twice the price if helped by a good sales person.
To better explore this notion let's take a look and explore some thoughts on home loan lending and the loan agent.
The loan agent for the modern day private lender is there for one reason. They are there to hold the borrowers hand, keep them happy, and most importantly to see them through the entire closing process. This is important because the borrower and home buyer has a lot to deal with. The never ending list of closing costs can be overwhelming and borrowers often want to back away as they become overwhelmed with all the financial obligations and contracts.
Because good sales people are hard to find and historically impossible to control, the typical employee to employer arrangement has proved a poor performance strategy.
Salary is a commitment and if the employer is wrong about the hired employee than they are out quite a bit of money. Sales people have a reputation of taking their own interest to the extreme. If they are guaranteed money this is gonna make managing them even worst. Why go the extra mile if there is no perceived self benefit?
Thus the commission has proven to be a great fit for the marketing and sales side of business operations.
Sales people are also good at extracting the highest price tolerable by any one given borrower. Thus loan origination points are a great match for originating loans. The sales guy is able to pull huge commissions and thus make a fruitful living and the lender carries zero risk.
By giving sales people a optional margin and commission take depending on the price obtained for any given product a company is able to give their sales reps greater opportunity for tremendously less risk. The price and risk is passed on to the consumer. If the consumer or borrower negotiates the price down to the bare minimum than they have avoided the extra cost of the reps allowable premium. The rep in this scenario still gets a commission. The commission is not as high as it could have been if they were able to get the consumer to purchase the product for a higher premium.
Sales people learn to live and cope with this uncertainty.
Related Articles
Understanding Risk and the Certainty of Uncertainty
Showing posts with label finance industry. Show all posts
Showing posts with label finance industry. Show all posts
Saturday, January 1, 2011
Wednesday, December 1, 2010
Cash, Credit, or Cell?
"Hey can you cover me I left my charger at work?"
This is how you will sucker your friend in to paying for your night out in a year or two.
Confused?
Yeah... you, Master Card, Visa, and American Express too.
In just a few short months consumers will have the option to pay with cash, credit card, or their smart phone.
That's right soon your smart phone will be just like a credit card except better; it won't be a credit card.
Who Is Behind This New Payment Method?
More then several players are going to be directly offering a cell phone payment method.
Below is a quick list of the bigger companies creating an alternative credit method for your smart phone.
Isis
AT&T, Verizon, and T-Mobile are all joining forces to form a company or entity or whatever they are call such a partnership. This new transaction processing company will be called Isis.
Google and the Android Operating System
Google is developing a system that will integrate with their Android operating system. All a phone will need is the embedded chip.
New Start-Ups
There are several new companies that have already formed that are going to offer solutions for both consumers and merchants as an alternative to paying with the old credit card.
Why the Push to Create a New Payment Method and Credit Card Alternative?
Mobile Networks
This is the obvious answer. All the big data networks such as AT&T, Verizon, and T-Mobile will expand their offered services in a big way. The electronic transaction solution business is one hell of an extra business to get in to. They will get a cut of every transaction just like the credit card companies do now.
Consumer Choice
Then of course there is the consumer demand for an alternative to credit cads. there is an obvious benefit to being able to pay with your smart phone in addition to the other two choices that we already have. though this is an obvious motive for coming up with another merchant transaction solution and alternative to credit cards it is not even close to the main driver of this new industry.
Merchant Incentive - A Cheaper Better and Smarter Alternative
Merchants are going to welcome this thing with open arms. Merchants have a real love hate relationship with credit cards. The problem that merchants have with the existing credit card transaction solutions is the price they are charged by the credit card companies. It really puts a dent into the margins.
Also the credit card companies have been increasing rates on the merchants to make up losses that the banks have incurred during the credit crunch and massive waves of loan defaults.
To top it off the credit card companies have made it a breach of contract for merchants to say anything about the expense to consumers.
In fact many people have no idea how credit card companies make money. It's not the interest we all pay.
Merchants will be able to cut the transaction expense in half. This means bigger gains in margin. This thing will be huge for merchants.
Credit Card Companies are in Trouble
The one thing that is crystal clear amidst all this new possibility and choice that consumers, networks, and merchants will have in the very near future is that credit card companies are not going to fair well.
Sure there is going be a place for credit cards. Trust me when I tell you that credit cards are not going anywhere. I am actually surprised that the bigger credit cad companies are not more involved with this new movement but the again I guess these phone networks have a pretty solid infrastructure already in place.
My next post is going to be on what this will mean for consumers and merchants as well as the data networks. The positive impact and benefits of ths shift is going to be a lot bigger then most people would think and I really want to paint a vivid picture for everyone.
So check back soon!
Related Articles
Verizon vs AT&T - Comparing iPad Data Plan Financial Value
DIY - Credit Card Debt Management Plan
Consumer Credit Declines
This is how you will sucker your friend in to paying for your night out in a year or two.
Confused?
Yeah... you, Master Card, Visa, and American Express too.
In just a few short months consumers will have the option to pay with cash, credit card, or their smart phone.
That's right soon your smart phone will be just like a credit card except better; it won't be a credit card.
Who Is Behind This New Payment Method?
More then several players are going to be directly offering a cell phone payment method.
Below is a quick list of the bigger companies creating an alternative credit method for your smart phone.
Isis
AT&T, Verizon, and T-Mobile are all joining forces to form a company or entity or whatever they are call such a partnership. This new transaction processing company will be called Isis.
Google and the Android Operating System
Google is developing a system that will integrate with their Android operating system. All a phone will need is the embedded chip.
New Start-Ups
There are several new companies that have already formed that are going to offer solutions for both consumers and merchants as an alternative to paying with the old credit card.
Why the Push to Create a New Payment Method and Credit Card Alternative?
Mobile Networks
This is the obvious answer. All the big data networks such as AT&T, Verizon, and T-Mobile will expand their offered services in a big way. The electronic transaction solution business is one hell of an extra business to get in to. They will get a cut of every transaction just like the credit card companies do now.
Consumer Choice
Then of course there is the consumer demand for an alternative to credit cads. there is an obvious benefit to being able to pay with your smart phone in addition to the other two choices that we already have. though this is an obvious motive for coming up with another merchant transaction solution and alternative to credit cards it is not even close to the main driver of this new industry.
Merchant Incentive - A Cheaper Better and Smarter Alternative
Merchants are going to welcome this thing with open arms. Merchants have a real love hate relationship with credit cards. The problem that merchants have with the existing credit card transaction solutions is the price they are charged by the credit card companies. It really puts a dent into the margins.
Also the credit card companies have been increasing rates on the merchants to make up losses that the banks have incurred during the credit crunch and massive waves of loan defaults.
To top it off the credit card companies have made it a breach of contract for merchants to say anything about the expense to consumers.
In fact many people have no idea how credit card companies make money. It's not the interest we all pay.
Merchants will be able to cut the transaction expense in half. This means bigger gains in margin. This thing will be huge for merchants.
Credit Card Companies are in Trouble
The one thing that is crystal clear amidst all this new possibility and choice that consumers, networks, and merchants will have in the very near future is that credit card companies are not going to fair well.
Sure there is going be a place for credit cards. Trust me when I tell you that credit cards are not going anywhere. I am actually surprised that the bigger credit cad companies are not more involved with this new movement but the again I guess these phone networks have a pretty solid infrastructure already in place.
My next post is going to be on what this will mean for consumers and merchants as well as the data networks. The positive impact and benefits of ths shift is going to be a lot bigger then most people would think and I really want to paint a vivid picture for everyone.
So check back soon!
Related Articles
Verizon vs AT&T - Comparing iPad Data Plan Financial Value
DIY - Credit Card Debt Management Plan
Consumer Credit Declines
Friday, November 26, 2010
Looking Back at Cash For Clunkers - Obama Plan
August 2009
Cash for Clunker - Obama Stimulus Program
The phrase "Cash For Clunkers" has been all over the media as of late and for good reason. Cash For Clunkers is thus far the most successful economic stimulus program, this notion is impressive by any measure but is even more impressive when you take in the fact that it makes up less then 1% of the stimulus budget. Not to mention that this figure was increased three fold from the original 1 billion dollar budget to 3 billion which was passed by congress due to the overwhelming success.
What is the Cash For Clunkers Program?
The Cash For Clunkers Program is a Consumer spending and automotive industry stimulus program that awards consumers with a substantial rebate in the amount of 3,500-4,500 dollars for meeting the following:
The consumer must trade in a "clunker" which is a term to describe a older automobile that gets poor gas mileage. Clunkers get 18 or less miles to the gallon.
The consumer must then purchase a new car that is fuel efficient and at least 4 miles to the gallon more efficient then the clunker traded in. The Incentive or amount of the rebate awarded is much higher for a car that is 10 miles to the gallon more efficient then the clunker traded in.
As mentioned in the beginning of this article the Cash For Clunkers Program performed much better then expected which was the catalyst behind congress's decision to triple the budget. Taking a look at the financial numbers describing the economic activity makes the popularity of the Obama stimulus program quite evident.
Resulting Economic Activity of the Cash For Clunkers Program
Economic Activity surged and more importantly then how much is where. Consumer spending as well as the automobile sales were two of the most troubled aspects of the recession and these were the beneficiaries of Obama's Cash For Clunkers Program.
Consumer Value
The Cash For Clunkers Program allowed the consumer participants to obtain substantial value per dollar.
Environmental Implications
This program will obviously help the environment because of the programs focus on fuel efficiency.
Gas Prices
The cost of fuel or gas will inherit downward pressure because of the quarter million clunkers that have been taken off the road and replaced with a more fuel efficient counter part.
Jobs and employment
This program will obviously help improve the employment numbers given the increased consumer spending.
Credit and Lending Activity
These new automobile purchases gave an upward push to lending activity, as consumers took on secured debt to finance these purchases.
Cash for Clunker - Obama Stimulus Program
The phrase "Cash For Clunkers" has been all over the media as of late and for good reason. Cash For Clunkers is thus far the most successful economic stimulus program, this notion is impressive by any measure but is even more impressive when you take in the fact that it makes up less then 1% of the stimulus budget. Not to mention that this figure was increased three fold from the original 1 billion dollar budget to 3 billion which was passed by congress due to the overwhelming success.
What is the Cash For Clunkers Program?
The Cash For Clunkers Program is a Consumer spending and automotive industry stimulus program that awards consumers with a substantial rebate in the amount of 3,500-4,500 dollars for meeting the following:
The consumer must trade in a "clunker" which is a term to describe a older automobile that gets poor gas mileage. Clunkers get 18 or less miles to the gallon.
The consumer must then purchase a new car that is fuel efficient and at least 4 miles to the gallon more efficient then the clunker traded in. The Incentive or amount of the rebate awarded is much higher for a car that is 10 miles to the gallon more efficient then the clunker traded in.
- 3500 dollars is awarded for a four mile improvement.
- 4500 dollars is awarded for a 10 mile improvement.
As mentioned in the beginning of this article the Cash For Clunkers Program performed much better then expected which was the catalyst behind congress's decision to triple the budget. Taking a look at the financial numbers describing the economic activity makes the popularity of the Obama stimulus program quite evident.
Resulting Economic Activity of the Cash For Clunkers Program
- Approximately 700,000 - 750,000 Transactions or new car purchases
- Approximately 20 billion dollars in sales
Economic Activity surged and more importantly then how much is where. Consumer spending as well as the automobile sales were two of the most troubled aspects of the recession and these were the beneficiaries of Obama's Cash For Clunkers Program.
Consumer Value
The Cash For Clunkers Program allowed the consumer participants to obtain substantial value per dollar.
Environmental Implications
This program will obviously help the environment because of the programs focus on fuel efficiency.
Gas Prices
The cost of fuel or gas will inherit downward pressure because of the quarter million clunkers that have been taken off the road and replaced with a more fuel efficient counter part.
Jobs and employment
This program will obviously help improve the employment numbers given the increased consumer spending.
Credit and Lending Activity
These new automobile purchases gave an upward push to lending activity, as consumers took on secured debt to finance these purchases.
Homeowners Can Stop Foreclosure
Many homeowners are finding themselves staring down the barrel of mortgage default and a looming foreclosure sale. There are a lot of homeowners who think that all hope is lost and that their is nothing that they can do. They feel hopeless. The thoughts of uncertainty are too much for many to deal with.
I have good news for these homeowners stuck amidst the cloud of uncertainty and fear. There is hope for a brighter tomorrow. Homeowners are able to stop foreclosure. There are literally dozens upon dozens of foreclosure solutions available for homeowners who find themselves amidst a financial hardship.
Below I have created a list of some of the most common methods homeowners use to stop foreclosure. Under each label is a brief description as well as links to resources offering further research.
Hang in there. You can stop foreclosure.
How Homeowners Stop Foreclosure
Loan Modification
Loan Modification has become increasingly popular. This debt help solution allows homeowners to lower their monthly mortgage payment.
Mortgage Refinance
Mortgage refinancing will stop foreclosure but has become increasingly difficult but if a mortgage refinance is obtainable it is one of the more favorable mortgage workouts available to Homeowners.
Short Sale
Short Sale is quite common in the world of foreclosure but the homeowner will always lose their home in this situation.
Hard Money Loan
Hard Money Loans are very lucrative for investors if equity has accumulated in the property.
Loan Audit
Loan Audits performed by lawyers in effort to find grounds to legally challenge the lender is a new trend. Many have found success, as the lender will often opt for loan modification at the threat of a lawsuit.
Bankruptcy
Bankruptcy will stop the foreclosure proceedings but generally the Homeowner will eventually lose the home down the road.
Forbearance
The lender often grants a forbearance agreement or a repayment plan to the Homeowner in efforts to retain home ownership.
Home Sale
Selling the home on the open market is a way to stop foreclosure but it is generally a better idea to postpone the sale to relieve the discounting pressure on the sales price of a home when in foreclosure.
These mortgage solutions that allow Homeowners to stop foreclosure are just some of the many mortgage workout options that are available to Homeowners who need to stop foreclosure and save their home.
I have good news for these homeowners stuck amidst the cloud of uncertainty and fear. There is hope for a brighter tomorrow. Homeowners are able to stop foreclosure. There are literally dozens upon dozens of foreclosure solutions available for homeowners who find themselves amidst a financial hardship.
Below I have created a list of some of the most common methods homeowners use to stop foreclosure. Under each label is a brief description as well as links to resources offering further research.
Hang in there. You can stop foreclosure.
How Homeowners Stop Foreclosure
Loan Modification
Loan Modification has become increasingly popular. This debt help solution allows homeowners to lower their monthly mortgage payment.
Mortgage Refinance
Mortgage refinancing will stop foreclosure but has become increasingly difficult but if a mortgage refinance is obtainable it is one of the more favorable mortgage workouts available to Homeowners.
Short Sale
Short Sale is quite common in the world of foreclosure but the homeowner will always lose their home in this situation.
Hard Money Loan
Hard Money Loans are very lucrative for investors if equity has accumulated in the property.
Loan Audit
Loan Audits performed by lawyers in effort to find grounds to legally challenge the lender is a new trend. Many have found success, as the lender will often opt for loan modification at the threat of a lawsuit.
Bankruptcy
Bankruptcy will stop the foreclosure proceedings but generally the Homeowner will eventually lose the home down the road.
Forbearance
The lender often grants a forbearance agreement or a repayment plan to the Homeowner in efforts to retain home ownership.
Home Sale
Selling the home on the open market is a way to stop foreclosure but it is generally a better idea to postpone the sale to relieve the discounting pressure on the sales price of a home when in foreclosure.
These mortgage solutions that allow Homeowners to stop foreclosure are just some of the many mortgage workout options that are available to Homeowners who need to stop foreclosure and save their home.
When and How Subprime Went Wrong - Explained
Subprime Lending Went Wrong
Subprime loans have enabled thousands upon thousands of Americans who did not qualify for prime loans the opportunity to buy a home via the funds obtained through a subprime loan.
However the subprime lending market got a little to ambitious for their own good.
These overly ambitious subprime lenders began lending to borrowers who did not qualify. These loans were doomed from the get go but they were masked by fill in the blank financial documents and even worst missing documentation.
The other direction was perhaps worst from a ethical stand point but an understandable strategy from a purely cost benefit analysis.
Subprime loans were given to prime borrowers. Even worst many of these loans were taken blindly by borrowers who did not understand what they were getting themselves into. Many prime borrowers were refinancing out of more favorable home loans into less favorable much more expensive loans with exotic terms that the borrowers did not understand.
Thus the end result is today's and yesterday's head lines. First the bad subprime loans to less then subprime borrowers started to go bad. This put pressure on the housing markets. Then that new pressure on housing prices started to push a lot of typical subprime borrowers with subprime loans down the default trap and this really started to put some weight on the housing market.
At this point the level of foreclosures every month is starting to skyrocket out of control. Loan agents and real estate agents start to quickly find themselves out of work. They start defaulting on their financial obligations including their loans and their home loans as well.
Then the prime borrowers with subprime loans begin to crumble under the quaking of a faltering economy. Once this wave of borrower starts going so to do retail sales, automotive sales, jewelry sales and the like.
As these sales go so to do the salaries and commissions that the employees and agents of those industries were making. Then there mortgages begin to default. Many of these borrowers are prime borrowers.
The mortgage market is in free fall right behind the home sale figures. Businesses are laying off employees and cutting back.
From here it just gets worst.
Nationwide panic leads to world wide panic.
Then there was a bottom. Then there was Obama. Then there was stimulus.
Then the US started on their way back up.
Related Articles
Subprime Economy
Subprime loans have enabled thousands upon thousands of Americans who did not qualify for prime loans the opportunity to buy a home via the funds obtained through a subprime loan.
However the subprime lending market got a little to ambitious for their own good.
These overly ambitious subprime lenders began lending to borrowers who did not qualify. These loans were doomed from the get go but they were masked by fill in the blank financial documents and even worst missing documentation.
The other direction was perhaps worst from a ethical stand point but an understandable strategy from a purely cost benefit analysis.
Subprime loans were given to prime borrowers. Even worst many of these loans were taken blindly by borrowers who did not understand what they were getting themselves into. Many prime borrowers were refinancing out of more favorable home loans into less favorable much more expensive loans with exotic terms that the borrowers did not understand.
Thus the end result is today's and yesterday's head lines. First the bad subprime loans to less then subprime borrowers started to go bad. This put pressure on the housing markets. Then that new pressure on housing prices started to push a lot of typical subprime borrowers with subprime loans down the default trap and this really started to put some weight on the housing market.
At this point the level of foreclosures every month is starting to skyrocket out of control. Loan agents and real estate agents start to quickly find themselves out of work. They start defaulting on their financial obligations including their loans and their home loans as well.
Then the prime borrowers with subprime loans begin to crumble under the quaking of a faltering economy. Once this wave of borrower starts going so to do retail sales, automotive sales, jewelry sales and the like.
As these sales go so to do the salaries and commissions that the employees and agents of those industries were making. Then there mortgages begin to default. Many of these borrowers are prime borrowers.
The mortgage market is in free fall right behind the home sale figures. Businesses are laying off employees and cutting back.
From here it just gets worst.
Nationwide panic leads to world wide panic.
Then there was a bottom. Then there was Obama. Then there was stimulus.
Then the US started on their way back up.
Related Articles
Subprime Economy
Subprime Lending
Sub-prime Mortgage Lending and Home Loan Borrowing
A sub-prime mortgage is a mortgage that was created for the sub-prime borrower or in other terms borrowers who did not qualify for a prime mortgage which generally have more favorable terms.
A sub-prime mortgage will traditionally have higher interest rates, higher closing costs and or servicing fees. The higher cost of debt is justified by the higher risk taken by the lender.
The sub-prime mortgage has caused the recent recession and housing crash.
Though the Subprime lending has contributed in large part to the turmoils of our economy not all subprime mortgage loans are a bad thing.
The practice of sub-prime lending has enabled consumers to obtain home loans that they were able to use to buy a home and thus live the American Dream.
Sub-prime borrowers are unable to get approved for the more borrower friendly prime mortgage loans. This is for the simple fact that only prime borrowers qualify for prime home loans.
Since a sub-prime borrower does not qualify for a prime mortgage, one can easily deduce that if such a borrower is unable to borrower via a sub-prime loan then that borrower is not going to be able to buy a home. Following this logic there is a clear space and market for sub-prime mortgage loans and thus sub-prime lending.
Related Articles
Subprime Economy
When and How Subprime Went Wrong - Explained
A sub-prime mortgage is a mortgage that was created for the sub-prime borrower or in other terms borrowers who did not qualify for a prime mortgage which generally have more favorable terms.
A sub-prime mortgage will traditionally have higher interest rates, higher closing costs and or servicing fees. The higher cost of debt is justified by the higher risk taken by the lender.
The sub-prime mortgage has caused the recent recession and housing crash.
Though the Subprime lending has contributed in large part to the turmoils of our economy not all subprime mortgage loans are a bad thing.
The practice of sub-prime lending has enabled consumers to obtain home loans that they were able to use to buy a home and thus live the American Dream.
Sub-prime borrowers are unable to get approved for the more borrower friendly prime mortgage loans. This is for the simple fact that only prime borrowers qualify for prime home loans.
Since a sub-prime borrower does not qualify for a prime mortgage, one can easily deduce that if such a borrower is unable to borrower via a sub-prime loan then that borrower is not going to be able to buy a home. Following this logic there is a clear space and market for sub-prime mortgage loans and thus sub-prime lending.
Related Articles
Subprime Economy
When and How Subprime Went Wrong - Explained
Subprime Economy
The American economy has seen better times.
The catalyst behind the current recession is the mortgage and housing sector.
Foreclosure levels are skyrocketing and the American homeowner is suffering the worst.
A large part of the financial trouble consumers are having is due to subprime mortgage loans. Many prime borrowers took subprime mortgages. This is unfortunate as many of these folks were misinformed and assumed that they were getting a good deal. Large portions of the once prime borrower population have now needlessly lost their home. They simply did not bother to read the loan contracts they were signing, or they failed to see the risk they were assuming.
It is important for consumers to understand basic mortgage lending and borrowing concepts. One such concept related to mortgage lending is the difference between a prime mortgage and a subprime mortgage.
Related Articles
America's Banks are Baked - Financially Risky and Crispy
Commercial Mortgage Loan Default
Debt Help and Debt Solutions
The catalyst behind the current recession is the mortgage and housing sector.
Foreclosure levels are skyrocketing and the American homeowner is suffering the worst.
A large part of the financial trouble consumers are having is due to subprime mortgage loans. Many prime borrowers took subprime mortgages. This is unfortunate as many of these folks were misinformed and assumed that they were getting a good deal. Large portions of the once prime borrower population have now needlessly lost their home. They simply did not bother to read the loan contracts they were signing, or they failed to see the risk they were assuming.
It is important for consumers to understand basic mortgage lending and borrowing concepts. One such concept related to mortgage lending is the difference between a prime mortgage and a subprime mortgage.
Related Articles
America's Banks are Baked - Financially Risky and Crispy
Commercial Mortgage Loan Default
Debt Help and Debt Solutions
Wednesday, November 3, 2010
How Credit Card Companies Make Money - What you may not know
If you are a consumer then chances are you have a credit card account, or at least have had a credit card account in the past.
Do you know how credit card companies make money?
Do you know why credit card companies are so willing to lend via unsecured revolving accounts?
Most people would guess credit card companies such as Visa, Master Card, Discover, and American Express make their huge profits by charging consumer borrowers interest on the money they borrow via their credit card.
Most people are wrong.
Though some credit card companies lend some of their own money or at least make money off the interest that is charged this typically represents a insignificant portion of their overall revenue. This information may come as quite a surprise. But it is more true then most can imagine.
Common Credit Card Company Revenue Streams and Origins
Transaction Commissions
Transaction commissions are the bread and butter of the credit card industry.
When you pull out that Visa card and make a purchase the merchant pays a portion of the money charged to Visa or whatever credit card or bank applicable. The exact percentage of the charge that is handed over to the credit card company variable. This rate is different from card company to card company and from merchant to merchant.
Small merchants pay more. Big merchants pay less. Exclusive and smaller credit card brands charge more. Larger and bigger credit card companies charge less.
For instance McDonald's pays a small fraction of what a "Mom and Pop" store would have to pay. Having said that the typical merchant is going to end up paying 1%-7% depending on the card.
American Express and Discover typically charge higher rates then the larger companies such as Visa and Master Card.
Borrower Fee's
Many credit card companies charge annual maintenance fee's, late fee's, and whatever other fee that some guy wearing a tie and a rolex dreams up. These fee's are typically 10 - 100 bucks a year per card. That may not sound like so much but take 50 bucks and multiply it by say 50 million accounts. Now we are talking real money.
Advertising and Marketing Revenues
Information. The commodity of all commodities. Credit card companies have found themselves knee deep in consumer information. What population of Visa card holders have made at least one monthly online purchase for the last nine months? Well you can most likely obtain some pretty accurate answers to that question if you are willing to pay for it. Even if a buyer of such information is unable to buy that info they will still be able to reap the benefits of knowing the answer.
What do I mean by that?
Perhaps the buyer is able to place an email blast to all those card holders, or a direct mailing campaign, or whatever. For a fee per mail-out or phone number or maybe a part of the revenue generated from the marketing list. the possibilities are limitless.
Cross Selling Related Products
Protect your credit score. Buy life insurance. The offers a consumer gets are limitless. many of these offers are through one of your existing credit card companies. these large cross selling efforts have a similar macro effect as does the annual maintenance fee. If a card issuer is able to generate an average of 18 dollars per credit account via other products and services then these companies are able to generate billions an additional revenue.
These same tactics work great for other outside company products and an affiliate program.
So there you have it. Now you know that your credit card company is not focusing on that interest rate they are focusing on transaction volume, marketing dollars, and consumer information.
Sleep well.
Do you know how credit card companies make money?
Do you know why credit card companies are so willing to lend via unsecured revolving accounts?
Most people would guess credit card companies such as Visa, Master Card, Discover, and American Express make their huge profits by charging consumer borrowers interest on the money they borrow via their credit card.
Most people are wrong.
Though some credit card companies lend some of their own money or at least make money off the interest that is charged this typically represents a insignificant portion of their overall revenue. This information may come as quite a surprise. But it is more true then most can imagine.
Common Credit Card Company Revenue Streams and Origins
Transaction Commissions
Transaction commissions are the bread and butter of the credit card industry.
When you pull out that Visa card and make a purchase the merchant pays a portion of the money charged to Visa or whatever credit card or bank applicable. The exact percentage of the charge that is handed over to the credit card company variable. This rate is different from card company to card company and from merchant to merchant.
Small merchants pay more. Big merchants pay less. Exclusive and smaller credit card brands charge more. Larger and bigger credit card companies charge less.
For instance McDonald's pays a small fraction of what a "Mom and Pop" store would have to pay. Having said that the typical merchant is going to end up paying 1%-7% depending on the card.
American Express and Discover typically charge higher rates then the larger companies such as Visa and Master Card.
Borrower Fee's
Many credit card companies charge annual maintenance fee's, late fee's, and whatever other fee that some guy wearing a tie and a rolex dreams up. These fee's are typically 10 - 100 bucks a year per card. That may not sound like so much but take 50 bucks and multiply it by say 50 million accounts. Now we are talking real money.
Advertising and Marketing Revenues
Information. The commodity of all commodities. Credit card companies have found themselves knee deep in consumer information. What population of Visa card holders have made at least one monthly online purchase for the last nine months? Well you can most likely obtain some pretty accurate answers to that question if you are willing to pay for it. Even if a buyer of such information is unable to buy that info they will still be able to reap the benefits of knowing the answer.
What do I mean by that?
Perhaps the buyer is able to place an email blast to all those card holders, or a direct mailing campaign, or whatever. For a fee per mail-out or phone number or maybe a part of the revenue generated from the marketing list. the possibilities are limitless.
Cross Selling Related Products
Protect your credit score. Buy life insurance. The offers a consumer gets are limitless. many of these offers are through one of your existing credit card companies. these large cross selling efforts have a similar macro effect as does the annual maintenance fee. If a card issuer is able to generate an average of 18 dollars per credit account via other products and services then these companies are able to generate billions an additional revenue.
These same tactics work great for other outside company products and an affiliate program.
So there you have it. Now you know that your credit card company is not focusing on that interest rate they are focusing on transaction volume, marketing dollars, and consumer information.
Sleep well.
Friday, September 24, 2010
The Recession is Officially Over... Unless You ask Warren
Warren Buffet (now worth about 45 billion dollars) has said that the recession is not over.
Not but a few days ago the powers that be said that the recession ended in June. Then the next day the Oracle of Omaha confidently stated that the recession is in fact not over.
Now before we all get to excited over the confusion I should mention that the 45 billion dollar man (that pays a low 15% tax rate as the richest man in the world next to bill gates. His secretary pays about 35 - 40%) did correctly disclose that he uses a different definition of a recession and a different definition of when a recession is over. He says measures must return to a level that are equal to the levels that were reached prior to the recession. This differs from the traditional definition which actually is quite subjective in nature but more or less goes like this; a recession is over when the economy starts growing again.
Government folk measure out put growth or GDP. So once the economy starts to expand rather then shrink the recession has ended.
So what should we think of this?
Well both sides of this contradiction are using different variables and measures. the government sees that the economy has started to expand and more importantly stopped contracting.
Buffet has given numbers from his company Berkshire Hathaway that support this analysis. He also says that the companies are only 1/3 - 2/3 of the way back to levels that they were before the recession.
Is the recession over?
Look I am not buffet and I am certainly not on the government payroll. But I do have a strange and elegant talent to visualize the way large, broad, systems function on the macro level. I assign variables as visual shapes that interact with each other and I play these sort of "mental model - what if scenario experiments" They tend to be more or less accurate for the most part. when they go wrong it is almost always because I have made a very large and fundamental error when visualizing what variables are at play.
So given that I have a good understanding of the economic forces that be, I have a clear idea of where we are.
Here it goes...
We are just beginning to recover from the recession. We are not well. if we were in grade school we would be requesting homework assignments because we are not at school.
If we are able to rest and stay put at home for the next year then we will be able to stabilize this thing with certainty. As of now there is a lot of risk, if we get disrupted (that is if we are to get hit with another economic problem) and are not able to get the rest that we need then you can rest assured that things are going to take a dive for the worst.
We don't have the physical strength to recover from a fever caused by exhaustion. We have already taken medicine so med's won't help, more stimulus could actually make things worst.
I have painted this picture before but instead we were using a car analogy.
I have to admit that when buffet shared his idea or thoughts on stimulus I was floating on air. It was as if he had read this finance blog, my very words, and my thoughts.
So let us hope that we are not struck with a financial bump, before we are able to get over the hump.
Buffet said that we are, and will recover. He said there was no doubt. I trust him.
Related Articles
The Housing Recovery
HAMP Modifications Slowing Down
Bank of America Mortgage Help
Baking US Banks - Fundamentally Risky, Burnt, and Financially Crispy
Economic Recovery?
Not but a few days ago the powers that be said that the recession ended in June. Then the next day the Oracle of Omaha confidently stated that the recession is in fact not over.
Now before we all get to excited over the confusion I should mention that the 45 billion dollar man (that pays a low 15% tax rate as the richest man in the world next to bill gates. His secretary pays about 35 - 40%) did correctly disclose that he uses a different definition of a recession and a different definition of when a recession is over. He says measures must return to a level that are equal to the levels that were reached prior to the recession. This differs from the traditional definition which actually is quite subjective in nature but more or less goes like this; a recession is over when the economy starts growing again.
Government folk measure out put growth or GDP. So once the economy starts to expand rather then shrink the recession has ended.
So what should we think of this?
Well both sides of this contradiction are using different variables and measures. the government sees that the economy has started to expand and more importantly stopped contracting.
Buffet has given numbers from his company Berkshire Hathaway that support this analysis. He also says that the companies are only 1/3 - 2/3 of the way back to levels that they were before the recession.
Is the recession over?
Look I am not buffet and I am certainly not on the government payroll. But I do have a strange and elegant talent to visualize the way large, broad, systems function on the macro level. I assign variables as visual shapes that interact with each other and I play these sort of "mental model - what if scenario experiments" They tend to be more or less accurate for the most part. when they go wrong it is almost always because I have made a very large and fundamental error when visualizing what variables are at play.
So given that I have a good understanding of the economic forces that be, I have a clear idea of where we are.
Here it goes...
We are just beginning to recover from the recession. We are not well. if we were in grade school we would be requesting homework assignments because we are not at school.
If we are able to rest and stay put at home for the next year then we will be able to stabilize this thing with certainty. As of now there is a lot of risk, if we get disrupted (that is if we are to get hit with another economic problem) and are not able to get the rest that we need then you can rest assured that things are going to take a dive for the worst.
We don't have the physical strength to recover from a fever caused by exhaustion. We have already taken medicine so med's won't help, more stimulus could actually make things worst.
I have painted this picture before but instead we were using a car analogy.
I have to admit that when buffet shared his idea or thoughts on stimulus I was floating on air. It was as if he had read this finance blog, my very words, and my thoughts.
So let us hope that we are not struck with a financial bump, before we are able to get over the hump.
Buffet said that we are, and will recover. He said there was no doubt. I trust him.
Related Articles
The Housing Recovery
HAMP Modifications Slowing Down
Bank of America Mortgage Help
Baking US Banks - Fundamentally Risky, Burnt, and Financially Crispy
Economic Recovery?
Thursday, September 2, 2010
America's Banks are Financially Baked - Crispy and Risky
Financially crispy, and unfortunately risky. That is the blunt truth regarding the US banking industry.
The unfortunate and scary reality of the matter is that out of the nearly 8,000 banks that are FDIC insured almost 830 of them are on the "oh crap" list that is kept by the FDIC.
That is a little more then 1 out of every 10 banks, or more specifically 11%.
By "oh crap" I am implying that they have been flagged by the FDIC as a potential credit risk. This does not mean that they have or will fail, nor does this mean that they are even likely to fail. It just means that they are seen as having an unfavorably high level of risk compared to the typical FDIC insured banking firm. If you are one of those that want nothing to do with finance (you must be lost) please note that "risk" always exist. There is a risk that you will find and lose a suitcase full of money today.
They all will continue to be insured by the FDIC. Your money is safe (besides it's just paper we can print as much as we want, what it is, or will be, worth is the only risk) up to the insured limit.
Bank Failures
Almost 120 banks have failed year to date. 140 banks failed last year. if we stay on this pace then we should have 300 bank failures in two years time by Christmas of 2010.
I just love the holidays don't you?
Another big event or lack of event reported by the FDIC is that there have been zero new FDIC insured banking firms over the last quarter. I am not sure but that may very well be a first.
Loan Origination
Though default rates have eased for the first time since 2006 or something crazy like that, banks are still not lending. The only loans that are really being originated are car loans.
This is no good. I have no more to say on that end.
How about some brighter numbers...
One glimmer of hope is that in terms of profitability, things are headed in the right direction. For instance during the second quarter these 7,800 banking institutions collectively profited by 21.6 billion dollars which is 25 billion dollars better then last years second quarter results.
As of now 80% of banks are profitable.
Back to the bad news...
But then again that means that 1 in 5 banks are operating at a loss.
During the first three months of 2010 total assets held by banking institutions decreased by 135 billion dollars.
The bottom line of all this is in line with the a previous and recent post on this finance blog that discussed the current state of the US economy.
Things are kinda... almost... could be improving. However there is room to worry.
The most bothersome notion from all this is that I, and some other folks who know a thing or two about finance and all that other god awful subject matter, see a very close, and very scary ledge, or rather cliff, running parallel to the narrow road of recovery that are hybrid economy car is traveling.
All we can do is pray that it is not a Toyota.
(I made a funny)
(I like Toyota)
Related Articles
The Current State of the US Economy
Credit Unions vs Banks
Housing Stability
Wednesday, July 28, 2010
HAMP Modifications Are Drying Up - Uh Oh?
I was reading over an article I saw on a proclaimed debt help resource for homeowners.
The article was on the stats and numbers pertaining to the HAMP modification performance to date.
I expected to see good numbers as I have been hearing good things amidst the never ending slue of finance blog posts that I read on the housing market.
At first I really did see some promising numbers. There was a few highlights to warm you up stating how much money everyone was saving through these modifications through Obamas homeowner help program.
Then the first data table looked pretty swell as well. At first but as I followed the dates down from May of last year to the turn of the decade and then the numbers just started to crawl.
The next data table was even worst in fact it was a bit horrifying. It was just month to month growth rates for the cumulative modifications and net new monthly modifications... it was bad. I almost want to believe those guys made the whole thing up... but he didn't.
I think the future is becoming bleaker suddenly and no one knows it yet.
I hope we are not as screwed as those damn data tables make me think we are.
At one point I thought maybe that the population of eligible homeowners was simply exhausted. This is not so. The Make Home Affordable Outreach effort are only increasing in intensity. More and more homeowners are being urged to check the basic qualifications of Obama's modification assistance program and to apply if eligible.
The article was on the stats and numbers pertaining to the HAMP modification performance to date.I expected to see good numbers as I have been hearing good things amidst the never ending slue of finance blog posts that I read on the housing market.
At first I really did see some promising numbers. There was a few highlights to warm you up stating how much money everyone was saving through these modifications through Obamas homeowner help program.
Then the first data table looked pretty swell as well. At first but as I followed the dates down from May of last year to the turn of the decade and then the numbers just started to crawl.
The next data table was even worst in fact it was a bit horrifying. It was just month to month growth rates for the cumulative modifications and net new monthly modifications... it was bad. I almost want to believe those guys made the whole thing up... but he didn't.
I think the future is becoming bleaker suddenly and no one knows it yet.
I hope we are not as screwed as those damn data tables make me think we are.
At one point I thought maybe that the population of eligible homeowners was simply exhausted. This is not so. The Make Home Affordable Outreach effort are only increasing in intensity. More and more homeowners are being urged to check the basic qualifications of Obama's modification assistance program and to apply if eligible.
Monday, July 26, 2010
Stabilizing The Housing Market – How America Did It
The mortgage loan and housing crisis created tremendous economic anxiety and directed the American economy towards a black hole of financial hardship.
Though the US economy is not out of the recession or perhaps depression, things have appeared to settle down a bit.
It looks as if the housing market may be stabilizing. This sis a article exploring the steps and actions that were taken to stabilize the US housing market.
All of these actions taken by our collective American government has really helped stabilize the US housing market.
It looks as if the housing market may be stabilizing. This sis a article exploring the steps and actions that were taken to stabilize the US housing market.
Key Actions of Housing Recovery
- The FHA's Efforts and Powerful Initiative
- Their efforts to spend capital on mortgage assets and securities when private capital was no where to be found.
- Political backing of their efforts to reform the financial markets and particularly the practices and operations involving debt and risk management.
- Obama’s Making Home Affordable Plan
- HAMP Modifications have helped 1.2 million homeowners obtain a loan modification
- HARP Refinance
- Lender Incentives
- Freddie Mae as acting agent for the MHA-C or the compliance assurance operations
- The Plans overall flexibility and agility to structure and restructure programs as they are needed.
- The Marketing and Advertising – aka the out reach efforts of the Making Home Affordable Plan
- The Hardest Hit Fund – Foreclosure Relief
- Home Buyer Tax Credit
- The home buyer tax credit added a great incentive for first time home buyers.
- The Nearly 25 Billion Dollars Given to US Housing Agencies
- US Housing Agencies were able to keep lending while other private lenders were saddle bagging cash out of fear and financial panic.
- 1.4 Trillion dollars of Purchases by the FED and Treasury to Keep Credit Markets from Choking
- Thank God. We would be Russian otherwise.
- Financial Support for Fannie and Freddie
All of these actions taken by our collective American government has really helped stabilize the US housing market.
Thursday, July 22, 2010
Refinancing Consumer Craze - Low Mortgage Interest Rates
Low Mortgage Rates – Low Mortgage Origination –
Sky Rocketing Mortgage Refinance Origination Loans
 |
| Low Mortgage Rates Create High Demand for Mortgage Refinancing |
Mortgage rates are low as they can be. I honestly do not know if we are ever going to see rates this low ever again. Though I should say that statements like that some how always seem to turn out wrong.
So with low mortgage rates you may suspect as I would that there would be high levels of mortgage origination's. Consumers would take advantage of such an opportunity.
Right…
…well…
…yes and no.
See the level of mortgage origination's is not rising. This is due to the low home sale figures as of late. But consumers are still taking advantage of the low mortgage rates.
Consumers are taking advantage of low mortgage interest rates by refinancing out of higher more profitable (for lenders) interest rate mortgage products into lower more borrower friendly loans. Mortgage refinancing activity has doubled from the end of the first quarter.
According to MBA, the Mortgage Banking Association, the weekly refinance index has pushed past 4,000. That number dwarfs recent index lows of 2,000.
I think that this is a positive trend for the American consumer. By refinancing into a lower mortgage rate homeowners will be able to lower monthly mortgage rates and and make home affordable.
This is a great opportunity for consumers to take advantage of the ability to utilize mortgage refinance as a debt solution in these times of financial hardship.
Thursday, July 15, 2010
Financial Reform Pushed Through By Democratic Majority and Three Republicans
A New Financial Industry Reform Bill Has Passed
Well 2,100 pages of potential American Policy and Law fixing to keep a tighter watch on the financial industries practices of marketing products to the American Consumer is on its way to Presidents Obama's Desk. Obama is expected to sign.
From what I have read thus far this bill is not really “known”.
That is a confusing way for me to put it but everything I have read has been vague at best.
ABC has said that the bill will add some consumer protection agency to keep a close watch on lending practices. Also Bond rating agencies may have to come up with a new business model which is well.... long over due.
Another potentially big aspect of this thing will effect derivative trading and the regulations that are put on private equity and hedge funds. That will be interesting to see play out.
Overall I think the financial markets do need some shape up or restructuring I guess I am just not sure that a 2100 page bill that no one really seems to understand or have even read seems a little fast.
I do believe and have faith in Obama to make the right decision on this one. He truly believes something needs to be done. I will support his decision regarding reform of the financial industry.
Related Articles
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Flaw of American Tax Law
Banks Lowering Debt Levels to Pretty Up Balance Sheets
From what I have read thus far this bill is not really “known”.
That is a confusing way for me to put it but everything I have read has been vague at best.
ABC has said that the bill will add some consumer protection agency to keep a close watch on lending practices. Also Bond rating agencies may have to come up with a new business model which is well.... long over due.
Another potentially big aspect of this thing will effect derivative trading and the regulations that are put on private equity and hedge funds. That will be interesting to see play out.
Overall I think the financial markets do need some shape up or restructuring I guess I am just not sure that a 2100 page bill that no one really seems to understand or have even read seems a little fast.
I do believe and have faith in Obama to make the right decision on this one. He truly believes something needs to be done. I will support his decision regarding reform of the financial industry.
Related Articles
Reform or Refrain - Regulating the Financial Industry
Goldman Sachs Settles with SEC
Flaw of American Tax Law
Banks Lowering Debt Levels to Pretty Up Balance Sheets
Friday, March 5, 2010
Reform or Refrain - What Will Become of the Push to Reform the Financial Markets
It is no secret that the financial markets have not performed at there best. The free market by default will always be on the move, sometimes up, and sometimes down.
The last few years has been a bit skewed if we go by the history of the financial markets. We have not seen performance this low since the Great Depression.
Should the government reform the financial markets and current regulatory practices?
The federal government has already stepped in and bailed out or contributed to the financial stability of most of the large financial institutions and banks who are in large part the reason for the economic down turn of the economy. Just as the the government has reasoned that they needed to step in and aid the financial institutions so to do they believe that they need to step in and take a bigger presence as a government regulatory force in the broader financial markets and financial services industry. However as one might imagine there has been some negative feedback from the financial institutions and from many politicians.
Shouldn't the government step in and play a larger role given the fact that they already have stepped in the form of financial aid to these very same institutions? Many say yes. However just the many say no. The argument and rebuttal to this proposal is that regulators and the government will have a negative impact on the markets as they will increase artificial constraints and will increase the degree of uncertainty for investors.
This seems a fair argument as regulatory bodies will make mistakes as they are only human in the end. plus there is also room for the unseen and unintended consequences that seem to always pop up when Uncle Sam gets in the way and these blunders are not easily changed if they don't work. Plus it is arguable to say that the regulatory bodies have done a mediocre job thus far in enforcing the current line up of rules and regulations that are already in place for financial markets and the business world.
On the other hand there does seem to be a obvious problem with the markets at this given point and time. Also to be fair to the regulatory bodies such as the FED and the FDIC there are some loop holes that need to be fixed so that these guys can have the control they need over non bank deposit financial institutions whom leverage up to obscene levels and add systemic risk to the downside for everybody. Such institutions are not subject to the same liquidity or capitol levels that the typical savings and loan bank is held to. Thus these guys potentially can take things to far and as of now it seems as if they have.
Given these above notions I would like to hear what people think. Should there be added regulation to the world of finance?
If yes what do you think should be done?
The last few years has been a bit skewed if we go by the history of the financial markets. We have not seen performance this low since the Great Depression.
Should the government reform the financial markets and current regulatory practices?
The federal government has already stepped in and bailed out or contributed to the financial stability of most of the large financial institutions and banks who are in large part the reason for the economic down turn of the economy. Just as the the government has reasoned that they needed to step in and aid the financial institutions so to do they believe that they need to step in and take a bigger presence as a government regulatory force in the broader financial markets and financial services industry. However as one might imagine there has been some negative feedback from the financial institutions and from many politicians.
Shouldn't the government step in and play a larger role given the fact that they already have stepped in the form of financial aid to these very same institutions? Many say yes. However just the many say no. The argument and rebuttal to this proposal is that regulators and the government will have a negative impact on the markets as they will increase artificial constraints and will increase the degree of uncertainty for investors.
This seems a fair argument as regulatory bodies will make mistakes as they are only human in the end. plus there is also room for the unseen and unintended consequences that seem to always pop up when Uncle Sam gets in the way and these blunders are not easily changed if they don't work. Plus it is arguable to say that the regulatory bodies have done a mediocre job thus far in enforcing the current line up of rules and regulations that are already in place for financial markets and the business world.
On the other hand there does seem to be a obvious problem with the markets at this given point and time. Also to be fair to the regulatory bodies such as the FED and the FDIC there are some loop holes that need to be fixed so that these guys can have the control they need over non bank deposit financial institutions whom leverage up to obscene levels and add systemic risk to the downside for everybody. Such institutions are not subject to the same liquidity or capitol levels that the typical savings and loan bank is held to. Thus these guys potentially can take things to far and as of now it seems as if they have.
Given these above notions I would like to hear what people think. Should there be added regulation to the world of finance?
If yes what do you think should be done?
Thursday, December 24, 2009
Economic Growth - GDP 2.2% - Is It Real?
The final numbers are in for the third quarter and the numbers show a 2.2% growth in the Gross Domestic Product, also referred to as GDP. Now this figure can be good or bad news depending on who you talk to.
If you ask me any positive growth is great news. I mean things have seemed so bad that the notion that economic activity is on the rise is extremely appealing.
On the other hand the expectations were set for about 3% so many investors were spooked when they saw a figure that was about 30% or so lower then they were thinking. Though other figures that came out along side these numbers helped ease the pain. For instance existing home sales, as well as home prices were both very positive.
I for one am just glad to see things going the right direction. But I can no help but to feel a bit skeptical of the numbers.
When I am out and about in the real world things just don't match the financial head lines. For instance, I noticed that the trick or treat tradition no longer exists in any comparative form to just 10 years ago. Though this is an observation of a local area, and hardly a sophisticated indicator, it does tell me that if there is growth, then the lack of trick or treaters must be accounted for some where. But where? I also noticed that there were no xmass tree dealers in town this year. They use to pack each and every parking lot. Where did they go?
I have seen little reason to believe that there has been any sort of growth. All I have witnessed, for my self, is less.
A little less of everything.
Any Thoughts?
Saturday, August 1, 2009
Ben Bernanke to serve another term as the Chairmen of the Federal Reserve
August 2009
President Obama interrupted his vacation this late August to publicly announce that he is appointing Ben Bernanke to serve another term as the Chairmen of the Federal Reserve.
Obama did not shy from elaborating on his reasoning or feeling towards Ben Bernanke's work, He had more then enough praise for the current and future Chairmen of the Federal Reserve to hold a few press conferences. Obama was sure to lay claim to the fact that it was bernanke's extraordinary effort, quick and innovative thinking and problem solving that prevented the American Economy from spiraling down into a second great depression.
Congratulations to Ben Bernanke on his appointment to serve a second term as the Chairmen of the Federal Reserve. Let us all support his efforts to steer us back on the road to financial prosperity and away from that horrible world of foreclosure and mortgage default.
President Obama interrupted his vacation this late August to publicly announce that he is appointing Ben Bernanke to serve another term as the Chairmen of the Federal Reserve.
Obama did not shy from elaborating on his reasoning or feeling towards Ben Bernanke's work, He had more then enough praise for the current and future Chairmen of the Federal Reserve to hold a few press conferences. Obama was sure to lay claim to the fact that it was bernanke's extraordinary effort, quick and innovative thinking and problem solving that prevented the American Economy from spiraling down into a second great depression.
Congratulations to Ben Bernanke on his appointment to serve a second term as the Chairmen of the Federal Reserve. Let us all support his efforts to steer us back on the road to financial prosperity and away from that horrible world of foreclosure and mortgage default.
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